Banks to Push All Ordinaries Index to New Highs

With reporting season underway, we can see how the aftermath of the royal commission is still working its way through the financial services sector. Despite this, it is likely that the banks will push the All Ordinaries Index to new highs later in the year.

In its half year results, NAB reported revenue growth at just 1.4 per cent while expenses were up 1.7 per cent. Its earnings included $525 million in customer-related remediation costs, which resulted in the interim dividend being cut by 16 per cent from 99 cents down to 83 cents per share.

ANZ reported a 2 per cent increase in cash profit and held its interim dividend at $0.80 cents per share. Westpac reported yesterday but it had already advised the market of an additional $260 million in remediation costs, adding to a total profit downgrade of more than $750 million.

Based on this you would think we should continue to stay clear of the banks but as Mr Buffett says ‘buy in doom and sell in boom’. While the banks have been falling since early 2015, they have been trading up this calendar year with ANZ performing the best up over 11 per cent, followed by Westpac up nearly 10 per cent, NAB up around 7 per cent and CBA 3.5 per cent.

So am I bullish on the banks? I am getting really close, as I think these stocks will do well in the second half of this year and over the coming years.

This week AMP also reported a $1.8 billion net outflow in its cash flow update for the first quarter. While its shares are down over 8 per cent this year, I believe it is starting to turn, so we may see a different story in the second half of the year.

With the RBA set to meet this week it’s highly likely we could see an interest rate cut. Prior to our last federal election, the RBA cut rates on the basis of global growth figures and lower inflation levels. Interestingly, this is quite similar to the situation we currently face with inflation at lower than expected levels and strong performance in the global markets. That said, with a fragile housing market and fair bit of political uncertainty, I believe it would be wise for the RBA to hold interest rates right now but only time will tell.

Leading the way in the top 200 stocks is Afterpay Touch up 13 per cent, Bravura up nearly 9 per cent and Nine Holdings up over 8 per cent. This week the worst performers have been Pendal Group down nearly 12 per cent, Domain Holdings down 10 per cent and Super Retail down nearly 9 per cent.

So what do we expect in the market?

The Australian market has traded down this week and I expect to see this continue for another one to two weeks before it returns to being bullish over the medium to longer term. Right now, my expectation is for the market to rise over the next one or two months before falling into a low sometime in July. I also expect the All Ordinaries Index will finally break through its previous all-time high this year that occurred on 1 November 2007 at 6,873 points to achieve a new all-time high.

So let’s get into this week’s stocks. Watch the video to find out more. 

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.